Financial Calculators

Lease Calculator

Our lease calculator will help you to determine the monthly, and total payment for a lease.

lease calculator

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Table of contents

What is a leasing agreement?
Leasehold residual value
The lease agreement
Lease vs. rent
Lease vs. Purchase

What is a leasing agreement?

A lease can be defined as a contract between two persons - the lessor and the lessee - in which the former pays for the use of a particular item or asset.
A lessee means the one using the good or, more formal, the one who gets the right to the asset in return for regular payments.
The lessee is legally the owner of the goods. Usually, the lessee agrees with the lessor to follow certain additional rules concerning the use and maintenance of the leased property. It is possible, for example, that a car leasing agreement states that the lessee cannot use the car except for personal use.
Most personal property and real estate can be leased. Common assets that can be leased include:
  • cars,
  • houses, which can be used as family homes, apartments, and so forth.,
  • raw lands,
  • furniture,
  • Different types and models of special equipment (e.g. machinery),
  • Other types are also available.
  • In a lease agreement, the lessor is allowed to use an asset in return for regular payment (the "leasing rates" for leasing a car or " rental" for leasing an apartment). The contract stipulates the payment amount and is usually equal to the difference between leased goods’ initial value and residual value. Additional conditions must be followed by the lessee to ensure that an asset is used properly. A contract may stipulate that you can use the leased vehicle only for business purposes and that you cannot keep pets in the apartment. You also need to think about down payments, deposits, as well as any additional charges that may be imposed by your lessor.
    A lease usually has a fixed term, and the lessee is obligated to return the property. Sometimes, the lessee has the option of buying the asset from its residual (a portion of what a brand new item would cost). This is a popular option for business equipment and cars.

    Leasehold residual value

    One of the key terms used in a leasing agreement (sometimes referred to as "salvage value") is the residual. Although it is very easy to grasp, it is often misunderstood and missed opportunities for lessees.
    In simple terms, residual value is simply the value that an asset will have at the end. The residual value is simply an estimate of the selling price of the leased asset after the leasing period ends. Formally, the residual value is equal to the initial value less Depreciation.
    This amount is in the leasing agreement and has an immediate impact on leasing costs (see section example - leasing calculation). The rule is that the residual value will decrease the longer the lease period. The exception to this rule is real estate properties. Real estate properties can sometimes have higher residual valuations after the lease period due to general property price increases.

    The lease agreement

    Formally, a lease refers to a legal agreement between two parties, as per the contract law of the relevant jurisdiction (i.e. country or state). There is no universal lease agreement. However, it is possible to highlight some common elements within each lease agreement.
  • Names of the parties (the lessee or the lessor) to the agreement
  • Information required to identify an object of a lease (e.g. VIN in car leases).
  • The agreement will start and last for a certain period.
  • There are specific provisions that will allow you to use the object.
  • The terms and conditions for the return of a security deposit, as well as provisions for them.
  • A list containing additional conditions (so-called default conditions).
  • There are provisions that cover the necessity to have insurance. The most common areas covered include fire, lightning; theft, vandalism; windstorms.
  • Restrictive use provisions
  • The provisions governing who is responsible for the maintenance
  • Conditions for renewing the contract (if applicable).
  • Clauses of termination in contracts
  • Some types of lease contracts might also have clauses that the country or state law requires.

    Lease vs. rent

    A rental and a lease are basically the exact same. You pay a set amount to be able to use the asset. But there is one difference: A lease agreement is stricter than a contract for renting. Let's examine a simple example. When renting an apartment, you can move out at any time or pay rent earlier than agreed upon with your landlord. You can also request that the landlord amend the terms of your agreement. You cannot do this under a lease agreement.
    No matter how often you use the apartment, if you lease it for three years, you must pay the monthly rental fee. Once the lease contract is signed by both parties, they cannot change it or face penalties. Therefore, it is unlikely that an apartment will be leased by a landlord to an individual.

    Lease vs. Purchase

    The difference between purchasing an asset and leasing it is in the ownership title. Leasing an asset means that the owner retains the title to the asset. You have no rights beyond the lease period. However, many of us don’t have enough cash to buy cars. We will often need to obtain a loan.
    Do you wonder which option should you choose? Let's take a look at some of the most prominent differences.
  • Costs. Although you might believe that leasing a vehicle is a better option for financing, it is not. Your monthly lease rate will be higher than that of a loan. However, this means you'll pay a higher rate of interest on the lease. Additionally, lessees are often subject to additional charges such as termination fees and lease initiation fees. This can add to the total cost.
  • Termination. The loan you took to purchase a car can be repaid at any time. You can also sell the car to pay off your loan balance. You may face penalties if the lease is terminated earlier than agreed.
  • Equity. The loan will end and you can still use the money to buy a vehicle. Leases require that you return the car, and you must finance the purchase/lease of another car.
  • Usage. A car can be driven as many times as you like, so you don't need to worry about your kids spilling drinks and ice cream all over the upholstery. However, it can reduce its resale value. You will usually have a mileage limit, and you will have to pay any damage that isn’t normal wear and tear.
  • Ecoleasing

    Are you familiarized with the term "ecoleasing?" It is worth understanding what it means since its popularity has grown in recent years. Ecoleasing, in its simplest form, is a lease that allows a specific good to be rented for a period of time. Then it is returned to the lessor (usually the maker) who recycles the material.
    One example of ecoleasing would be a TV set lease. The TV manufacturer will sign a contract for the consumer. The contract grants the consumer the right to use the TV for up to 15,000 hours. 15,000 hours. After this period, he returns it to the company. The company then recycles the TV.
    Ecoleasing differs in the following ways from traditional lease:
  • Ecoleasing does not require you to sign a formal leasing agreement.
  • Ecoleasing usually involves appliances and other low-cost household products. It is rarely used for land, property, or high-end products. It is not applicable to B2B transactions.
  • Usually, the time between ecoleasing and the product's life expectancy is greater than or equal to its lifespan. This means that the product is only allowed to be rented one time before it is returned to its owner and recycled.
  • Ecoleasing has one major advantage: it's more eco-friendly than other methods. This means that less material is wasted and can be reused. A benefit of ecoleasing is that the manufacturer can make new devices at a lower price, which means they are more affordable for the customer.
    Parmis Kazemi
    Article author
    Parmis Kazemi
    Parmis is a content creator who has a passion for writing and creating new things. She is also highly interested in tech and enjoys learning new things.
    Lease Calculator English
    Published: Wed Jul 06 2022
    In category Financial calculators
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